VOLUME

Eli Lilly Breaks Resistance On Good Volume

10/19/06 08:30:06 AMby Arthur HillThe health-care sector has been strong lately, and Eli Lilly is doing its part with a consolidation breakout on good volume.

Security:LLYPosition:Accumulate

The HealthCare SPDR recorded a new 52-week high this past week and is one of the top-performing sectors currently. Within that sector, Eli Lilly (LLY) is also breaking out with a move above resistance at 57.5. The combination of a strong sector and a strong stock points to higher prices in the coming weeks.

On the price chart (Figure 1), LLY surged from late May to early July and then consolidated between 54 and 57.5. The stock established resistance at 57.5 with the August reaction low and support at 54 with reaction lows in July, August, and September. In addition, the 50-day moving average and 200-day moving average marked support around 55–56 in August and September. There was also a golden cross when the 50-day moved above the 200-day in early August.

FIGURE 1: ELI LILLY. LLY surged from late May to early July and then consolidated between 54 and 57.5.

LLY surged to resistance around 57.5 in late September and then consolidated around this level in October. The stock was having trouble breaking free until the close above 58 on above-average volume. This is the third advance on above-average volume in October, and increased buying pressure validates the breakout. The accumulation-distribution line also confirms buying pressure with a breakout in October.

Picking an upside target is problematic. The stock has traded between 49 and 61 since November 2004. This means there is a resistance zone around 60 and LLY could stall in this area. A break above 61 would forge a 52-week high and be even more bullish. For support, the 50-day and 200-day are currently at 56 and 55.2. A move below 55 would be deemed excessive and nullify this bullish prognosis.

Arthur Hill

Arthur Hill is currently editor of TDTrader.com, a website specializing in trading strategies, sector/industry specific breadth stats and overall technical analysis. He passed the Society of Technical Analysts (STA London) diploma exam with distinction is a Certified Financial Technician (CFTe). Prior to TD Trader, he was the Chief Technical Analyst for Stockcharts.com and the main contributor to the ChartSchool.